The effects of economic freedoms on tax revenues: The case of Turkey and European Union

Tax revenues obtained based on state sovereignty; meeting social components, including investment components in the public space, and increasing as a resource to continue economic activities. The fiscal (financial) purpose, known as the primary purpose of tax revenues, is the information of public expenditures. The second purpose is the nonfinancial (extrafiscal) purpose and it is used as a policy instruments against the imbalances occurring in the economy. Tax revenues have the largest share among public revenues and affect many variables at the macroeconomic level, but are also affected by many variables. One of the variables affecting tax revenues is economic freedom, which is considered as the independent variable of the study. In this study, the effect of economic freedoms on tax revenues is analyzed by using the data of Turkey and European Union countries for the period 2008-2021. Inflation and economic growth variables are also included in the study as control variables. The economic freedom data used in the study are data from the Economic Freedom Index compiled from the annual reports published by the Fraser Institute. Economic growth, inflation and tax revenues are obtained from the World Bank. In order to see the effects of the Lisbon Treaty, which was signed between the European Union countries and which is thought to affect the Economic Freedom variable, which is the dependent variable of the study, and the effects of the 2008 World Crisis, the baseline year of the time sample was chosen as 2008. 2021 was chosen as the last year for which some of the data of the study could be accessed. In order to fulfill the originality criterion of the study, Turkey and the European Union countries were selected as the sample. This study was analyzed with the Panel ARDL method. According to the findings, increases in economic freedom in the long run lead to an increase in tax revenues. The effect of economic freedom on tax revenues is positive and significant.